AM: Merry Christmas

S&P500 daily at 12:50 EST

AM Update

MARKET BEHAVIOR

Stocks are down fractionally on Christmas Eve as most buyers and sellers are taking the day off.  We are sitting at 1425, but we need to be wary of any dip under 1410 that would violate the recent bounce and 50dma.  This would trigger a wave of stop-losses clustered below these technical levels, further pressuring the market.

MARKET SENTIMENT

Friday’s selloff didn’t continue and overwhelm today’s light pre-holiday trade.  While we might see more weakness in coming days, don’t expect a major collapse.  All the bears who are pessimistic about this economic and political environment have leaned into this market with all their might and the best they coud manage was a 20 point decline.  The market also tried to shake out weak holders and but failed to induce many traders to bail on their positions.  Most of the holders in this market are willing to hold through the headline risk and that bodes well for the bull case.

News doesn’t drive markets, people trading stock does.  If bears are already out/short and holders are willing to hold through volatility, then markets defy gravity and negative headlines slide right off.  This description fits our current situation pretty well.  Going into next year how do things look?  We have all this headline risk and pessimism already priced into the market.  If we have already realized most of the downside, it doesn’t take a genius to figure out what the markets will do once we see a constructive resolution to these risks?

TRADING OPPORTUNITIES

Be ready to buy the rebound in the second half of this week.  We could see some initial weakness, so wait to buy on strength.  Shorts really need to get out-of-the-way of this market and should use weakness today or Wednesday morning to go flat.  Most people now anticipate us moving into the new year without a Fiscal Cliff deal, so don’t expect major selling when that widely expect event comes and goes.

INDIVIDUAL STOCKS

AAPL is up modestly in spite of broad market weakness. The low $500 range attracts buyers as we bounced off this level three-times already.  So far this has provided firm support for AAPL shares and is a key line in the sand going forward.  AAPL is buyable as long as we hold above this line.  Drop under $490 and we need to reevaluate.  I would largely discount selling due to another analyst downgrade or other opinion based analysis.  The only thing that would concern me is a material change in fundamental data out of the company in their upcoming earnings report.

Stay safe